What is a dark pool in the stock market?
In one line: A dark pool is a private trading venue where buy and sell orders aren't shown to the public before they fill, mostly used for large stock trades.
The short answer
On a normal exchange, orders sit in a public Order book. Anyone can see that someone wants to buy 5,000 shares at $40.
In a dark pool, waiting orders are hidden. Nobody sees the order until after it has traded.
The name sounds shady. It just means "not displayed."
Why they exist
Big funds have a problem. If they show an order to buy 2 million shares, other traders see it and push the price up before it fills.
A dark pool lets a buyer and seller of large blocks meet without showing their hand first. In the US, these venues are registered with the SEC as alternative trading systems (ATSs).
A simple example
A fund wants to sell 500,000 shares of a stock trading at $40.00 bid, $40.02 ask.
On a public exchange, a sell order that size would scare buyers and drag the price down. In a dark pool, it can be matched with a buyer at $40.01, the midpoint.
The trade still gets reported to the public tape shortly after it happens. What stayed hidden was the order before it filled.
What's public
- Every dark pool trade is reported after it happens, so it shows in daily Volume.
- FINRA publishes weekly volume figures for each dark pool, after a delay of a few weeks.
- You won't see waiting dark pool orders on Level 2 or Market depth.
Why it matters
A good chunk of US stock volume trades away from the public exchanges. So the order book you see is only part of the picture.
That's one reason we read levels from the chart itself, not from the order book. Where price turned is the result of all orders, lit and dark. See support and resistance.
A common mistake
Treating "dark pool prints" as a secret signal. Some services sell alerts about big dark pool trades. But a trade has a buyer and a seller. A large print doesn't tell you which side was eager, or what happens next.
Big trades are facts about the past. Your plan still needs an entry, a stop and a size.
Questions
Are dark pools legal?
Yes. In the US they're registered with the SEC and overseen by FINRA. Their trades must be reported.
Can retail traders use dark pools?
Not directly. Some brokers route small retail orders to off-exchange venues, but you don't choose that yourself.
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